In recent years, a trend towards electronic trading has become well-established, causing one major exchange after another to replace or at least supplement the traditional open outcry where a trade is done face to face, with electronic systems which automatically match bids and offers. While the motivation behind using electronic trading may vary from market to market, greater efficiency and volume are some of the considerations.
In particular, subscribing traders are connected to an exchange's electronic trading platform by way of a communication link and through an application program interface to facilitate real-time electronic messaging between themselves and the exchange. The electronic messaging includes market information that is sent from the electronic exchange to the traders. Market information may include data that represents just the inside market. The inside market is the lowest sell price (best or lowest ask) and the highest buy price (best or highest bid) at a particular point in time. Market information may also include market depth. Market depth refers to quantities available at the inside market and can also refer to quantities available at other prices away from the inside market. Additionally, the electronic exchange can offer other types of market information such as the last traded price (“LTP”), or the last traded quantity (“LTQ”).
Regardless of how the communication link is established, the client device provides a way for a trader to participate in the electronic market. Generally, each client device uses software that creates specialized interactive trading screens. The trading screens enable the traders to enter and execute orders, obtain market quotes, and monitor positions for one or more tradeable objects while implementing various trading strategies including those previously used on the floor of an open-outcry exchange.
As used herein, the term “tradeable object” refers to anything that can be traded with a quantity and price. For example, tradeable objects may include, but are not limited to, all types of traded financial products, such as, for example, stocks, options, bonds, futures, currency, and warrants, as well as funds, derivatives, and collections of the foregoing. Moreover, tradeable objects may include all types of commodities, such as grains, energy, and metals. Also, a tradeable object may be “real,” such as products that are listed by an exchange for trading, or “synthetic,” such as a combination of real products that is created by the trader (e.g. spread). A tradeable object could also be a combination of other tradeable objects, such as a class of tradeable objects or a trading strategy.
Trading strategies incorporated into electronic trading can improve among other things, the speed, accuracy, and ultimately the profitability of trading electronically. One such trading strategy is spread trading. Spread trading is the buying and/or selling of two or more tradeable objects, the purpose of which is to capitalize on changes or movements in the relationships between the tradeable objects. Each tradeable object of the spread can also be referred to as a “leg” of the spread. A spread trade could involve buying in two or more legs, buying and selling in two or more legs, selling in two or more legs or some combination thereof. Often, the tradeable objects being spread are real contracts for different delivery months (expiration dates) of the same tradeable object or contracts of the same tradeable object at different strike prices, but sometimes involve different real tradeable objects or the same tradeable object on different exchanges.
There are a variety of different algorithms that can be used to spread trade. To generate spread prices, one conventional spread algorithm calls for summing certain prices from each of the legs, where buying a leg is positive and selling a leg is negative. For instance, assume that a trader is interested in buying a first leg and selling a second leg. To generate prices in this example, a computer processor takes certain prices from the first leg and subtracts certain prices from the second leg. However, the use of addition and subtraction is ineffective for spread trading currencies and energy tradeable objects because of the format the currency and energy tradeable objects are established in. Currencies, for instance, are traded as ratios to begin with, so performing a summing calculation does not produce an accurate or usable price for the resulting spread.
Therefore, a spread algorithm known as the divide spread (or ratio spread) algorithm is used to trade currency and energy, or other similar tradeable objects. When using the divide spread algorithm, a computer processor calculates the spread prices by dividing certain prices in the first leg by certain prices in the second leg. So, for instance, using the divide spread algorithm, spreading currency tradeable objects known as “USD/Euro” and “USD/Yen” results in a spread of “Euro/Yen.” Using the divide spread algorithm, the resulting spread is tradeable, whereas the conventional algorithm of summation would have produced an unusable spread.
An electronic exchange may offer spread products like “Euro/Yen.” However, there are times when generating a spread independently (a synthetic tradeable object) yields a better price for the spread than the exchange provided spread (a real tradeable object). Thus, a trader may find using a divide spread algorithm beneficial because it presents opportunities for the trader to make a profit trading the spread. A commercially available trading application that allows traders to generate and electronically trade spreads is Auto Spreader™ from Trading Technologies International, Inc. Portions of the AutoSpreader™ style display can be found in U.S. patent application Ser. No. 10/137,979, entitled, “System and Method for Performing Automatic Spread Trading,” filed on May 3, 2002, incorporated herein by reference. Moreover, the generation and display of a spread along an axis is disclosed in U.S. patent application Ser. No. 09/880,078, entitled, “Electronic Spread Trading Tool,” filed on Jun. 14, 2001, the contents of which are also incorporated herein by reference. These tools advantageously display a spread against an axis of prices for a more intuitive view of the spread market. As a result, traders often times prefer to display a spread against an axis.
According to the conventional algorithm of summation, the trading system can calculate a linear price axis for the spread using the prices from each of the legs. The spread price axis which results from the calculation of such a spread, is a linear scaled price axis with prices at consistent tick increments. Using the linear price axis, the trader can then easily distinguish the incremental price levels on the prices axis as well as place orders at the calculated spread prices displayed on the price axis.
However, using the divide spread algorithm, the resulting price axis is often non-linear and non-scaled with inconsistent prices increments. The resulting price axis can be almost incomprehensible and impractical for a trader to use for electronic trading.
It is therefore, beneficial to provide a trading screen that offers a linear spread price axis for a trading strategy in an electronic trading environment.